Unit III Cost & Productions Analysis

PROF.
SEEMA LADDHA
25 April 2013
Cost Definition:
The
total money, time and resources associated with a purchase or activity. Economic cost Definition The sacrifice involved in performing an activity, or following a decision or course of action. It may be expressed as the total of opportunity cost (cost of employing resources in one activity than the other) and accounting costs (the cash outlays).
PROF. SEEMA LADDHA 25 April 2013
Cost means sacrifice

Cost may be defined as a sacrifice or foregoing which
has already occurred or potential to occur in future

with an objective to achieve a specific purpose
measured in monetary terms
PROF. SEEMA LADDHA
25 April 2013
1.
2. 3. 4. 5.
Rate of output i.e. utilization of fixed plant

Size of plant Prices of input factor (material and labour) Technology Size of lot
6.
7.
Stability of output
Efficiency of management as well as labour
PROF. SEEMA LADDHA
25 April 2013
The
concepts of cost, which are relevant to
business operations and decisions, can be grouped, on the basis of their purpose, under
two overlapping categories such as concepts used

for accounting purposes and concepts used in economic analysis of business activities.
PROF. SEEMA LADDHA
25 April 2013
Opportunity Cost and Actual Cost Business Costs and Full Costs Explicit and Implicit or Imputed Costs Out-of-Pocket and Book Costs Fixed and Variable Costs Total, Average and Marginal Costs Short-run and Long-run Costs Incremental Costs and Sunk Costs Historical and Replacement Costs Private and Social Costs
Production is the process of transformation of inputs into goods and services of utility to consumers and or producers. It is the process of creation of value or wealth through the production of goods and services that have economic value to either consumers or other producers. Such process of adding value may occur by change in form ( say steel into car ) or by change in place (from retailer to consumer ) Production of goods include all tangible items & services include all intangible items.
PROF. SEEMA LADDHA
25 April 2013
Short Run : Short run refer to the period of time when firm cannot vary some of its input i.e. for short run some of its output is fixed . Variable cost is one that can be mad to vary in short run Ex. Raw material , semi-skilled or unskilled labour Fixed cost can not be vary in short run Running cost and depreciation on capital assets are included in short run cost Long Run: All inputs are variable in the long run. All costs are variable in the long run. In long run fixed cost become variable as the size of the firm or scale of production increases
1.Land: is gift of nature and not the result of human effort. It includes all natural resources. Ex. Forest , river , sunlight,seas, minerals . All these are fixed supply& therefore return from land is called rent. 2. Labour The physical & mental efforts of human being that undertake a production process is labour The return from labour is termed as wages & salary. 3. Capital is that wealth which is used for further production,is not nature of gift , but produce by human capital Return for capital is interest 4.Enterprise: The ability and action to collect , and utilise all the factors of production for the pupose of economic gain is k/as enterprise .& entrepreneur define as the ability to take risk. Hence entrepreneur remuneration is profit.
PROF. SEEMA LADDHA
25 April 2013
The Production Process
The production process can be divided into the long run and the short run.
McGraw-Hill/Irwin
2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
The Long Run and the Short Run

A long-run decision is a decision in which the firm can choose among all possible production techniques. A short-run decision is one in which the firm is constrained in regard to what production decision it can make.
McGraw-Hill/Irwin
Production Tables and Production Functions

A production table shows the output resulting from various combinations of factors of production or inputs. Marginal product is the additional output that will be forthcoming from an additional worker, other inputs remaining constant Average product is calculated by dividing total output by the quantity of the output. Production function a curve that describes the relationship between the inputs (factors of production) and outputs. The production function tells the maximum amount of output that can be derived from a given number of inputs.
McGraw-Hill/Irwin
Cost output Relationship

Cost output relationship is very important for various kind of managerial problems Ex. Expence control, profit prediction, pricing and promotion It is relationship between cost and rate of output & assume that all other variables are constant The cost out put relation is important to study because it is subject to faster and more frequent changes Once the cost output function is determined, estimates future costs of production at various levels can usually be obtained by adjusting the cost function to reflect the effect of other forces , such as wage rates , material prices and lot size
McGraw-Hill/Irwin
PROF. SEEMA LADDHA
25 April 2013
13
Production Function

1. 2.
It is tool of analysis used to explain input output releationship Emperical production function is very complex because it includes wide range of input Q = f ( Ld, L, K , M , T, Te ) Production functions are normally divided into two broad categories One variable input/ Variable proportion production function. Two variable input/ Constant proportion production function
McGraw-Hill/Irwin
One variable input / Variable proportion production function.
The short run production function shows the maximum output a firm can produce when only one input can varied & other input remain fixed
Q = f ( L, K )
Q is output, L is labour, and K denotes the fixed amount of capital
McGraw-Hill/Irwin
A Production Table
Number of workers 0 1 2 3 4 5 6 7 8 9 10
McGraw-Hill/Irwin
Total output 0 4 10 17 23 28 31 32 32 30 25
Marginal product 4 6 7 6 5 3 1 0 2 5
Average product 4 5 5.7 5.8 5.6 5.2 4.6 4.0 3.3 2.5
A Production Function
32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0 7 6 TP Output per worker 5 4 3 2 1 1 2 3 4 5 6 7 Number of workers 8 9 10 3 4 5 6 7 Number of workers (b) Marginal and average product 0 1 2 8 9 MP 10 AP
Output
(a) Total product
McGraw-Hill/Irwin
The Law of Diminishing Marginal Productivity
Both marginal and average productivities initially increase, but eventually they both decrease.
This means that initially the production function exhibits increasing marginal productivity.
Then it exhibits diminishing marginal productivity.

Finally, it exhibits negative marginal productivity. The most relevant part of the production function is that part exhibiting diminishing marginal productivity.
McGraw-Hill/Irwin
Law of diminishing marginal productivity as more and more of a variable input is added to an existing fixed input, after some point the additional output one gets from the additional input will fall.
McGraw-Hill/Irwin

Number of workers 0 1 2 3 4 5 6 7 8 9 10
McGraw-Hill/Irwin
Total output 0 4 10 17 23 28 31 32 32 30 25
Marginal product
4 6 7 6 5 3 1 0 2 5
Average product 4 5 5.7 5.8 5.6 5.2 4.6 4.0 3.3 2.5 Increasing marginal returns
Diminishing marginal returns Diminishing absolute returns

32 30 28 26 24 22 20 Increasing 18 16 marginal returns 14 12 10 8 6 4 2 0 1 2 3 4 5 6 7 Number of workers (a) Total product Diminishing marginal returns Diminishing absolute returns 7 6 TP Output per worker 5 4 3 2 1 8 9 10 3 4 5 6 7 Number of workers (b) Marginal and average product 0 1 2 8 9 MP 10 AP
Diminishing marginal returns
Diminishing absolute returns
Output
McGraw-Hill/Irwin

This law is also called the flower pot law. If it did not hold true, the worlds entire food supply could be grown in a single flower pot.
McGraw-Hill/Irwin
The Costs of Production

There are many different types of costs. Invariably, firms believe costs are too high and try to lower them.
McGraw-Hill/Irwin
Fixed Costs, Variable Costs, and Total Costs
Fixed costs are those that are spent and cannot be changed in the period of time under consideration. In the long run there are no fixed costs since all costs are variable. In the short run, a number of costs will be fixed. Workers represent variable costs those that change as output changes. The sum of the variable and fixed costs are total costs. TC = FC + VC
McGraw-Hill/Irwin
Average Costs

Much of the firms discussion is of average cost. Average total cost (often called average cost) equals total cost divided by the quantity produced. ATC = TC/Q Average fixed cost equals fixed cost divided by quantity produced. AFC = FC/Q Average variable cost equals variable cost divided by quantity produced. AVC = VC/Q
McGraw-Hill/Irwin
Average Costs
Average total cost can also be thought of as the sum of average fixed cost and average variable cost.
ATC = AFC + AVC
McGraw-Hill/Irwin
Marginal Cost
Marginal cost is the increase (decrease) in total cost of increasing (or decreasing) the level of output by one unit. In deciding how many units to produce, the most important variable is marginal cost.
McGraw-Hill/Irwin
The Cost of Producing Earrings

Output FC VC TC MC AFC AVC ATC
3 4 9 10 16 17 22 23 27 28
McGraw-Hill/Irwin
50 50 50 50 50 50 50 50 50 50
38 50 100 108 150 157 200 210 255 270
88 100 150 158 200 207 250 260 305 320
12 8 7 10 15
16.67 12.50 5.56 5.00 3.13 2.94 2.27 2.17 1.85 1.79
12.66 12.50 11.11 10.80 9.38 9.24 9.09 9.13 9.44 9.64
29.33 25.00 16.67 15.80 12.50 12.18 11.36 11.30 11.30 11.42
Graphing Cost Curves

To gain a greater understanding of these concepts, it is a good idea to draw a graph. Quantity is put on the horizontal axis and a dollar measure of various costs on the vertical axis.
McGraw-Hill/Irwin
Total Cost Curves
The total variable cost curve has the same shape as the total cost curveincreasing output increases variable cost.
McGraw-Hill/Irwin
Total Cost Curves

$400 350 300 250 200 150 100 50 0
TC
VC
Total cost
TC = (VC + FC)
L O M 2 4 6 8 10 20 30 FC
Quantity of earrings
McGraw-Hill/Irwin
Average and Marginal Cost Curves

The marginal cost curve goes through the minimum point of the average total cost curve and average variable cost curve. Each of these curves is U-shaped.
McGraw-Hill/Irwin
Average and Marginal Cost Curves
The average fixed cost curve slopes down continuously.
McGraw-Hill/Irwin
Downward-Sloping Shape of the Average Fixed Cost Curve

The average fixed cost curve looks like a childs slide it starts out with a steep decline, then it becomes flatter and flatter. It tells us that as output increases, the same fixed cost can be spread out over a wider range of output.
McGraw-Hill/Irwin
The U Shape of the Average and Marginal Cost Curves
When output is increased in the short-run, it can only be done by increasing the variable input.
McGraw-Hill/Irwin

The law of diminishing marginal productivity sets in as more and more of a variable input is added to a fixed input. Marginal and average productivities fall and marginal costs rise.
McGraw-Hill/Irwin
And when average productivity of the variable input falls, average variable cost rise.
McGraw-Hill/Irwin
The average total cost curve is the vertical summation of the average fixed cost curve and the average variable cost curve.
McGraw-Hill/Irwin

If the firm increased output enormously, the average variable cost curve and the average total cost curve would almost meet. The firms eye is focused on average total costit wants to keep it low.
McGraw-Hill/Irwin
Per Unit Output Cost Curves

$30 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0
MC ATC AVC AFC 2 4 6 8 10 12 14 16 18 20 22 2426 28 30 32

Quantity of earrings
McGraw-Hill/Irwin
Cost
The Relationship Between Productivity and Costs
The shapes of the cost curves are mirrorimage reflections of the shapes of the corresponding productivity curves.
McGraw-Hill/Irwin

When one is increasing, the other is decreasing. When one is at a maximum, the other is at a minimum.
McGraw-Hill/Irwin

$18 16 14 12 10 8 6 4 2
Productivity of workers at this output
MC AVC
9 8 7 6 5 4 3 2 1
Costs per unit
A AP of workers MP of workers
4 8 12 16 20 24 Output
4 8 12 16 20 24 Output
McGraw-Hill/Irwin
Relationship Between Marginal and Average Costs
The marginal cost and average cost curves are related.

When marginal cost exceeds average cost, average cost must be rising. When marginal cost is less than average cost, average cost must be falling.
McGraw-Hill/Irwin
Marginal cost curves always intersect average cost curves at the minimum of the average cost curve.
McGraw-Hill/Irwin
The position of the marginal cost relative to average total cost tells us whether average total cost is rising or falling.
McGraw-Hill/Irwin
To summarize:
If MC > ATC, then ATC is rising. If MC = ATC, then ATC is at its low point. If MC < ATC, then ATC is falling.
McGraw-Hill/Irwin
Marginal and average total cost reflect a general relationship that also holds for marginal cost and average variable cost.
If MC > AVC, then AVC is rising. If MC = AVC, then AVC is at its low point. If MC < AVC, then AVC is falling.
McGraw-Hill/Irwin
As long as average variable cost does not rise by more than average fixed cost falls, average total cost will fall when marginal cost is above average variable cost,
McGraw-Hill/Irwin

$90 ATC MC 80 Area A Area C 70 60 AVC Area B ATC 50 AVC 40 30 B 20 A MC 10 Q0 Q1 0 1 2 3 4 5 6 7 8 9 Quantity
McGraw-Hill/Irwin 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
To
make their long-run decisions:
Firms look at costs of various inputs and the technologies available for combining these inputs. Then decide which combination offers the lowest cost.
The
firm makes long-run decisions on the basis of the expected costs and expected usefulness of inputs.
Technical
efficiency as few inputs as possible are used to produce a given output. Technical efficiency is efficiency that does not consider cost of inputs. Economically efficient the method that produces a given level of output at the lowest possible cost.
It
is the least-cost technically efficient process
In
the long run, a firm has many sizes to choose from. short run requires that scale be fixed only one or a few resources can be changed.
The
The law of diminishing marginal productivity does not

hold in the long run.
All inputs are variable in the long run. The shape of the long-run cost curve is due to the existence of economies and diseconomies of scale.
Scale
means size. Economies of scale: the decrease in per unit costs as the quantity of production increases and all resources are variable Diseconomies of scale: the increase in per unit costs as the quantity of production increases and all resources are variable Constant returns to scale: unit costs remain constant as the quantity of production is increased and all resources are variable
Total Costs Quantity of Labor
Total Cost Total Costs = Average Total of Machines TCL + TCM Costs = TC/Q
11 12 13 14 15 16 17 18 19 20
McGraw-Hill/Irwin
$381 390 402 420 450 480 510 549 600 666
$254 260 268 280 300 320 340 366 400 444
$635 650 670 700 750 800 850 915 1,000 1,110
$58 54 52 50 50 50 50 51 53 56
$64 62 60 58 56 54 52 50 48
Costs per unit
Average total cost Minimum efficient level of production
11 12 13 14 15 16 17 18 19 20 Quantity
McGraw-Hill/Irwin 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
To make their long-run decisions: Firms look at costs of various inputs and the technologies available for combining these inputs. Then decide which combination offers the lowest cost. The firm makes long-run decisions on the basis of the expected costs and expected usefulness of inputs.
PROF. SEEMA LADDHA
25 April 2013
58
The law of diminishing marginal productivity does not hold in the long run.
All inputs are variable in the long run. The shape of the long-run cost curve is due to the
existence of economies and diseconomies of scale.
PROF. SEEMA LADDHA
25 April 2013
59
Scale
means size. Economies of scale: the decrease in per unit costs as the quantity of production increases and all resources are variable Diseconomies of scale: the increase in per unit costs as the quantity of production increases and all resources are variable Constant returns to scale: unit costs remain constant as the quantity of production is increased and all resources are variable
60
(Amt.in Rs. lakh )
Total Costs Quantity of Labor
Total Cost Total Costs = Average Total of Machines TCL + TCM Costs = TC/Q
11 12 13 14 15 16 17 18 19 20
McGraw-Hill/Irwin
381 390 402 420 450 480 510 549 600 666
PROF. SEEMA LADDHA
254 260 268 280 300 320 340 366 400 444
25 April 2013
635 650 670 700 750 800 850 915 1,000 1,110
61
58 54 52 50 50 50 50 51 53 56
$64 62 60 58 56 54 52 50 48
Costs per unit
Average total cost Minimum efficient level of production
11 12 13 14 15 16 17 18 19 20 Quantity
62
PROF. SEEMA LADDHA
25 April 2013
63
$64 62 60 58 56 54 52 50 48
Economies of Scale
Costs per unit
Constant returns to Scale
Diseconomies of Scale Average total cost
11 12 13 14 15 16 17 18 19 20 Quantity
64
Costs per unit
Long-run average total cost (LRATC)
$60
Minimum efficient level of production
$55
$50 11 ATC falls because of economies of scale 14 17 20 ATC rises because ATC is constant because of constant of diseconomies of scale returns to scale
25 April 2013
PROF. SEEMA LADDHA
65
13-65
PROF. SEEMA LADDHA
25 April 2013
66
Economies
and diseconomies of scale play important roles in real-world long-run production decisions. The long-run and the short-run average cost curves have the same U-shape, but the underlying causes of these shapes differ. Economies and diseconomies of scale account for the shape of the long-run total cost curve.
67
Long-run costs are always less than or equal to shortrun costs because: In the long run, all inputs are flexible In the short run, some inputs are fixed There is an envelope relationship between long-run and short-run average total costs. Each short-run cost curve touches the long-run cost curve at only one point.
In
the short run all expansion must proceed by increasing only the variable input
This constraint increases cost

68
13-68
Costs per unit
LRATC
SRMC1 SRATC1 SRMC2 SRATC2 SRMC3 SRATC4 SRMC4 SRATC3
The long-run average total cost curve (LRATC) is an envelope of the short-run average total cost curves (SRATC1-4)
PROF. SEEMA LADDHA
25 April 2013
69
13-69
PROF. SEEMA LADDHA
25 April 2013
70
Long-run
average total cost (LRATC): the lowest-cost combination of resources with which each level of output is produced when all resources are variable. long-run average total cost curve gets its shape from economies and diseconomies of scale.
The
PROF. SEEMA LADDHA
25 April 2013
71
If producing each unit of output becomes less costly there are economies of scale. If producing each unit of output becomes more costly there are diseconomies of scale. If unit costs remain constant as output rises there are constant returns to scale.
PROF. SEEMA LADDHA
25 April 2013
72
PROF. SEEMA LADDHA
25 April 2013
73
= C/C Q/Q. C < 1 means falling AC, increasing returns. C = 1 means constant AC constant returns. C > 1 means rising AC, decreasing returns.
Cost
elasticity is C
74
PROF. SEEMA LADDHA
25 April 2013
75
Economies

of Scope Concept
Scope economies are cost advantages that stem from producing multiple outputs. Big scope economies explain the popularity of multi-product firms. Without scope economies, firms specialize.
Exploiting
Scope Economies
Scope economics often shape competitive strategy for new products.
PROF. SEEMA LADDHA
25 April 2013
76
Cost-volume-profit

Charts
Cost-volume-profit analysis shows effects of varying scale. Breakeven analysis shows zero profit points of cost coverage.
PROF. SEEMA LADDHA
25 April 2013
77
PROF. SEEMA LADDHA
25 April 2013
78
PROF. SEEMA LADDHA
25 April 2013
79
PROF. SEEMA LADDHA
25 April 2013
80
Economies
of scale long run average total costs decrease as output increases. In real-world production processes, economies of scale are extremely important at low levels of production. An indivisible setup cost is the cost of an indivisible input for which a certain minimum amount of production must be undertaken before the input becomes economically feasible to use.
Indivisible
setup costs create many realworld economies of scale.
The cost of a blast furnace or an oil refinery is an example of an indivisible setup cost.
In
the longer run all inputs are variable, so only economies of scale can influence the shape of the long-run cost curve.
Because
of the importance of economies of scale, business people often talk of a minimum efficient level of production.
The
minimum efficient level of production is the amount of production that spreads setup costs out sufficiently for firms to undertake production profitably.
The
minimum efficient level of production is reached once the size of the market expands to a size large enough so that firms can take advantage of all economies of scale.
Most
industries experience both economies and diseconomies of scale. minimum efficient scale (MES) is the minimum point of the long-run average-cost curve; the output level at which the cost per unit of output is the lowest.
The
The
MES varies considerably across industries.
Diminishing
marginal productivity refers to the decline in productivity caused by increasing units of a variable input being added to a fixed input.
Diseconomies
of scale refer to decreases in productivity which occur when there are equal increases of all inputs (no input is fixed).
Diseconomies of scale occur on the right side of the long-run average cost curve where it is upward sloping, meaning that average cost is increasing.
As
the size of the firm increases, monitoring costs generally increase.
Monitoring costs are those incurred by the organizer of production in seeing to it that the employees do what they are supposed to do.
As
the size of the firm increases, team spirit or morale generally decreases.
Team spirit is the feelings of friendship and being part of a team that brings out peoples best effort
Constant
returns to scale is where long-run average total costs do not change as output increases. It is shown by the flat portion of the LRATC curve.
$64 62 60 58 56 54 52 50 48
Economies of Scale
Costs per unit
Constant returns to Scale
Diseconomies of Scale Average total cost
11 12 13 14 15 16 17 18 19 20 Quantity
Costs per unit
$60
Minimum efficient level of production
Long-run average total cost (LRATC)
$55
$50 11 ATC falls because of economies of scale 14 17 20 ATC rises because ATC is constant because of constant of diseconomies of scale returns to scale
13-95
Economies
and diseconomies of scale play important roles in real-world long-run production decisions.
The
long-run and the short-run average cost curves have the same U-shape, but the underlying causes of these shapes differ.
Economies
and diseconomies of scale account for the shape of the long-run total cost curve.
Long-run costs are always less than or equal to shortrun costs because: In the long run, all inputs are flexible In the short run, some inputs are fixed There is an envelope relationship between long-run and short-run average total costs. Each short-run cost curve touches the long-run cost curve at only one point.
In
the short run all expansion must proceed by increasing only the variable input
This constraint increases cost

13-100
Costs per unit
LRATC
SRMC1 SRATC1 SRMC2 SRATC2 SRMC3 SRATC4 SRMC4 SRATC3
The long-run average total cost curve (LRATC) is an envelope of the short-run average total cost curves (SRATC1-4)
13-101
Long-run
average total cost (LRATC): the lowestcost combination of resources with which each level of output is produced when all resources are variable. long-run average total cost curve gets its shape from economies and diseconomies of scale.
The
If producing each unit of output becomes less costly there are economies of scale. If producing each unit of output becomes more costly there are diseconomies of scale. If unit costs remain constant as output rises there are constant returns to scale.
PROF. SEEMA LADDHA
25 April 2013
106
PROF. SEEMA LADDHA
25 April 2013
107
Economies
of Scale Long-run cost curves show minimum cost in an ideal environment.
PROF. SEEMA LADDHA
25 April 2013
108
PROF. SEEMA LADDHA
25 April 2013
109
PROF. SEEMA LADDHA
25 April 2013
110

Unit III Cost &amp; Productions Analysis

Загружено:

Сведения о документе

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Unit III Cost &amp; Productions Analysis

Загружено:

Авторское право:

Доступные форматы

PROF.

Cost means sacrifice

has already occurred or potential to occur in future

measured in monetary terms

PROF. SEEMA LADDHA

Rate of output i.e. utilization of fixed plant

PROF. SEEMA LADDHA

concepts of cost, which are relevant to

two overlapping categories such as concepts used

PROF. SEEMA LADDHA

PROF. SEEMA LADDHA 25 April 2013

PROF. SEEMA LADDHA

PROF. SEEMA LADDHA

The Production Process

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

The Long Run and the Short Run

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Production Tables and Production Functions

Cost output Relationship

PROF. SEEMA LADDHA

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

One variable input / Variable proportion production function.

Q is output, L is labour, and K denotes the fixed amount of capital

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

(a) Total product

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

The Law of Diminishing Marginal Productivity

Then it exhibits diminishing marginal productivity.

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

The Law of Diminishing Marginal Productivity

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

The Law of Diminishing Marginal Productivity

Diminishing marginal returns Diminishing absolute returns

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

The Law of Diminishing Marginal Productivity

Diminishing marginal returns

Diminishing absolute returns

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

The Law of Diminishing Marginal Productivity

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

The Costs of Production

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Fixed Costs, Variable Costs, and Total Costs

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

ATC = AFC + AVC

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

The Cost of Producing Earrings

38 50 100 108 150 157 200 210 255 270

88 100 150 158 200 207 250 260 305 320

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Graphing Cost Curves

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Total Cost Curves

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Total Cost Curves

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Average and Marginal Cost Curves

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Average and Marginal Cost Curves

The average fixed cost curve slopes down continuously.

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Downward-Sloping Shape of the Average Fixed Cost Curve

Unit III Cost & Productions Analysis

Unit III Cost & Productions Analysis